So the other day I was watching what was happening in Calgary in stunned shock, when I heard a news report about the fact that most people didn’t have insurance coverage against a flood (they may only had sewer backup coverage, so if in comes in the front door or windows they are up a creek…or river). I thought that seemed fairly silly, so I looked at my own insurance renewal forms to check my coverage.
I was a wee bit stunned to see towards the bottom of the fine print: there is no coverage for seepage or flood. WTF?!?! To put this into context I live within 300 meters of a small creek. Ugh, perhaps it is time to do a little investigation into my coverage (I do have sewer backup coverage).
Well after a wee bit of research I understand why most people don’t have flood insurance…it is hard to create a business model where the insurance product would make sense. For example, in fire insurance the reality is the majority of people want that insurance and only a very small number of homes burn up each year. So it is fairly easy for people to pool their risk via an insurance policy and not pay too much. Flood insurance is a bit different as the only people who would buy it would be those at risk by living on a flood plain. So your pool of people to spread the risk out by would decrease dramatically so to afford to pay out coverage you would need really high premiums to make it work. Of course high premiums makes it unattractive to sell so your coverage pool gets even smaller. So one big flood could bankrupt the insurance company.
So what happens when you have a large flood like Calgary…do people just lose their houses? Well not entirely, often the provincial and federal governments step in offering some degree of compensation to help with the rebuilding. Will it cover everything…not likely. In the end, water front views are nice, but you also have to consider the risk of where you live in terms of disasters. A friend of mine lives in Calgary and the garage of his building was flooded, but he lucked out it didn’t get to the first flood where his condo was.
In my case, I’m not too worried. My house is on a bit of a local high point and the creek near me is actually part of the flood control system. So rainfall is collected in a few nearby man made lakes and then slowly released into the creek via a dam. I’ve seen that creek with local flooding issues and while it gets a bit high it is still a very long way from getting into my house.
Do you know your insurance coverage for flood or sewer backup? Anyone got any insurance horror stories where they learned what you policy doesn’t cover the hard way?